Have these CSR problems at Apple had a meaningful impact on the bottom line? 

What is the role of media, including social media, in shaping CSR expectations?

Sun Hye Lee, Michael J. Mol, and Kamel Mellahi wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
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Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-03-22

Will it ever be good enough? That was the key question facing Apple Inc., (Apple) the California-based
multinational technology company that was known for its innovative hardware, software, and online
services. Apple had been accused of having allowed labour rights violations in China at Foxconn, a major
supplier of its products in 2009, but the company had worked hard to overcome these issues to avoid any
negative ramifications for its corporate image. Yet on December 18, 2014, new evidence was presented in
a British Broadcasting Corporation (BBC) documentary that showed that labour rights violations continued
to occur in China, this time at Pegatron, another large Apple supplier that specialized in the assembly of
Apple’s iPhones 1 This documentary questioned Apple’s repeated statement in its 2014 supplier
responsibility progress report that “Each of those workers has the right to safe and ethical working
conditions.”2

Jeff Williams had been promoted to the role of senior vice president for Operations only 15 days earlier,
when he was put in charge of what Apple called “end-to-end supply chain management . . . dedicated to
ensuring that Apple products meet the highest standards of quality.”3 Given the huge progress that Apple
had achieved, was the company simply being singled out unfairly because of its size, visibility, and earlier
problems? Indeed, Apple now had an excellent reputation in terms of corporate social responsibility (CSR)
and, in 2014, had been ranked fifth on Forbes’ “best CSR reputations” list.4 As Apple’s stock market value
moved ever closer to US$1 trillion,5 did outside observers hold Apple, the most valuable company ever, to
a higher level of corporate social responsibility? Alternatively, had the company still not fully come to
terms with the nature and magnitude of its CSR challenges?

It had indeed proven to be difficult to maintain control over Apple’s vast operations, particularly when most
activities were undertaken through outsourcing to independent suppliers that were mostly situated in
offshore locations, such as China, far from Apple’s base in California. Perhaps the most important question
of all was what Williams and Apple could do to tackle the allegations. Would it suffice to adopt a defensive
strategy, by simply denying that the problem was structural in nature and pointing to Apple’s many and
costly efforts? Or should Apple’s management instead engage with the issue and instigate further CSR
changes in its sourcing strategy? If so, what changes should be implemented? In short, how should Apple
and Williams respond?

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In 2014, more than 1.2 billion smartphone devices were sold worldwide, for combined revenues of more
than $380 billion.6 The competition among the major players — Samsung, Huawei, HTC, Nokia, and Apple
— had started to take a toll on the industry’s profitability, which led industry experts to suggest that the
smartphone industry was reaching its maturity stage, with year-on-year growth set to gradually decline.
Apple was the largest player in the industry, accounting for more than 90 per cent of profits in the fourth
quarter of 2014 and the first quarter of 2015.7 Samsung dominated the low end of the smartphone market,
while Apple dominated the more lucrative high end. The low-cost players, Lenovo and Xiaomi, which were
introduced to the smartphone market in 20128 and in 20119 respectively, broadened the reach of the
smartphone market to lower-income countries and intensified competition among the key players in the
market.10 The smartphone market had reached a saturation point in western markets, but was still expanding
in emerging and low-income countries, providing new emerging-market multinationals such as Xiaomi
with a potential competitive edge over traditional players such as Samsung, Apple, and LG.11

Besides its superior aesthetic design and cutting-edge features, Apple’s products were differentiated from
those of its competitors by its use of a proprietary operating system (iOS) and its connection to Apple’s
successful iTunes website that offered multimedia content for the iPhone and other Apple products. Because
of its differentiated position, Apple’s iPhone commanded a premium price, which drove up Apple’s
profitability and market value.12

Apple was not only the world’s most valuable company but also a hallmark of how information technology
could change lives. The company was founded in 1976 and started to encroach into the personal computer
market from the late 1980s and early 1990s onward. After the company nearly experienced a total collapse, it
convinced co-founder Steve Jobs to return in 1997 to revive the company. Jobs and his team succeeded with
great verve, launching such innovative products as the iPod and the iPad.13

However, Apple’s greatest success (as of the writing of this case) came from its debut in the smartphone
market.14 Ever since the introduction of the first-generation iPhone in 2007, Apple was recognized as the
market leader of the smartphone industry with its cutting-edge technology and design, enabling it to charge
a premium price and obtain a very high profit margin. In 2013, Apple’s sales revenue reached $170 billion
and its net income was more than $37 billion. In 2014, Apple’s revenue rose to nearly $183 billion, with
net income reaching $39.51 billion. Apple experienced exponential growth since 2008 (see Exhibit 1), and
the iPhone was the biggest contributor to its success (see Exhibit 2)

Apple customers were extremely loyal to Apple products, often also buying its computers and tablets
alongside the iPhone. For example, a survey conducted by Simonlycontracts.co.uk found that nearly 60 per
cent of 3,000 iPhone owners declared that they had “blind loyalty” to their iPhones, and 78 per cent said
they couldn’t “imagine having a different type of phone.”15

Foxconn, headquartered in Taiwan, was one of Apple’s biggest and oldest suppliers. In 2014, Apple
contributed more than 40 per cent of Foxconn’s revenue. It was the biggest privately owned company in
Taiwan with $131.8 billion sales revenue in 2013, and operations that stretched around the globe. Despite

its large size, Foxconn, as an original design manufacturer (ODM) had long been an unfamiliar name in the
public eye, chiefly because it did not produce its own branded goods.

In 2009, however, the Foxconn name suddenly came to prominence when a factory worker reportedly
committed suicide after losing a prototype of the iPhone 4. It was later alleged that the employee’s treatment
during questioning came close to being torture. One year later, another 18 Foxconn workers attempted to kill
themselves, and 14 died at the manufacturing company’s facilities.16 Various explanations were offered for
these deaths. Poor labour practices and working conditions were considered to be the main motivations for
the employee attempting to commit suicide. Ever since the 2010 incidents, the company had been under
increased scrutiny and pressure to improve its working conditions from various stakeholders, including non-
governmental organizations (NGOs), the media, and customers such as Apple.

After the Foxconn scandal, Apple and its suppliers were under more scrutiny than ever before. Apple made
various promises to improve its practices. One of Apple’s responses was to move some of its business away
from Foxconn to Pegatron, a Taiwanese electronics manufacturing company that mainly assembled the
iPhone 4, 4s, 5, and 5c, along with Apple’s iPad. The company’s factories were located in Taiwan, mainland
China, the Czech Republic, and Mexico, while its customer service centres operated in the United States
and Japan. Since it started producing Apple products in 2011, Pegatron showed remarkable increases in
revenue that mirrored those of Apple itself, from TW$599.9 billion in 201117 to TW$881.2 billion in 201218
to TW$949.8 billion in 2013.19

In 2013, China Labor Watch (CLW), a U.S.-based NGO, whose mission was to increase the transparency
of factory labour conditions in China, published Apple’s Unkept Promises, a report based on an undercover
investigation into working conditions at Pegatron factories. The situation was even more serious than at
Foxconn. According to the report, three Pegatron factories in China had violated 86 Chinese regulations,
including 36 legal and 50 ethical violations, ranging from use of a juvenile workforce, to violations of
women’s rights, excessive working hours, and environmental pollution. 20 In response to the public
disclosure of the report, Apple again promised its full dedication to addressing those issues.21 Jason Cheng,
Pegatron’s chief executive officer (CEO), also stated, “We will investigate the allegations fully and take
immediate actions to correct any violations to Chinese labour laws and our own code of conduct.”22

Nonetheless, on December 19, 2014, the global news media again accused Apple and Pegatron, alleging
that Apple had “broken its promises.” The previous day, the influential BBC Panorama program had
broadcast a documentary based on an undercover investigation of the actual practices and working
conditions at a Shanghai factory owned by Pegatron. The factory specialized in producing Apple products,
including the iPhone. A variety of poor practices were exposed. For example, workers had to hand in their
identification cards before entering the factory, were given no basic health and safety training, and had to
work excessive hours — up to 16 hours a day, which would sometimes continue for 18 consecutive days.
According to the documentary, workers’ requests for a day off were routinely ignored. Another scene in
the documentary showed workers who could not help but fall asleep in the middle of a busy production
line. The quality of life outside the factory was also criticized. Dormitories were overcrowded, and
consisted of nothing but 12 tiny beds placed end to end.23

Apple did not comment on camera for the BBC documentary, but the next day, Jeff Williams clearly
expressed what he and Apple CEO, Tim Cook, felt about the documentary. Their “deeply offended”
feelings were delivered to the 5,000 U.K. Apple employees in the form of a letter, which became public
when it was published by the Daily Telegraph.24 In the letter, Williams said, “We know of no other company

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doing as much as Apple does to ensure fair and safe working conditions, to discover and investigate
problems, to fix and follow through when issues arise, and to provide transparency into the operations of
our suppliers.”

In its 2014 progress report, Apple confidently remarked, “At Apple, we believe in making complex things
simple.”25 This statement was an apt description of its products’ appeal to consumers and in the area of
product design. Apple retained firm control to ensure it could deliver on this promise, but when it came to
supply chain management, an approach of simplification could have its limitations. Given the global nature
of Apple’s supply chain, the various products it produced, and the technological complexity of these
products, Apple needed to work with a wide array of suppliers. To fulfill its “promise,” Apple needed to be
aware of and appropriately manage all these relationships. Doing so raised various challenges.

Some of these challenges related to the various formal and informal national institutional regimes that
applied to various offshore locations. Apple and its suppliers operated in very different cultural, legal,
political, social, and economic environments. For example, its two key suppliers, Foxconn and Pegatron,
conducted their manufacturing operations mostly in mainland China. The top 200 suppliers on Apple’s
supplier list were scattered around the world, ranging from Korea, Japan, and Taiwan, through to Ireland
and the Czech Republic.26 As much as Apple may have wanted to make complex things simple, it could not
single-handedly change these diverse national environments to suit its own purposes. Apple and its
suppliers faced completely different stakeholders with different expectations. Apple needed to deal with
high expectations from consumers, employees, investors, NGOs, and governments in the United States and
other developed countries, while most of the suppliers were located in emerging countries that had much
lower expectations and different social values and norms. Forbes, for instance, commented on the
Panorama documentary:

While these issues are faced by every manufacturer, only Apple was specifically named in the
programme. More than any other company, Apple has been the leading target for campaigners on
working conditions, but it seems unfair to single out one manufacturer for the alleged sins of an
industry.27

No solitary manufacturer can walk into the supply chain and demand working conditions far in
advance of the prevalent conditions of the country. Change will be gradual, and measured over
years, if not decades.28

A second set of challenges related to maintaining close buyer-supplier relationships. Apple was notorious
for its price policy, squeezing suppliers to produce products at lower and lower costs.29 An executive from
one of Apple’s iPad producers stated that “the only way you make money working for Apple is figuring
out how to do things more efficiently or cheaper . . . and then they’ll come back the next year, and force a
10 per cent price cut.”30 Companies such as Foxconn dealt with conflicting demands: meeting higher
working standards, which included paying higher wages, reducing working hours, investing in safety
programs, and providing training, while also accepting lower and lower prices from Apple.

Foxconn appeared to have made an effort to improve working conditions and meet the required labour
standards. This effort was recognized by the Fair Labour Organization, which announced improvements in
labour practices in Foxconn factories. Ironically, however, Foxconn started losing orders from Apple around
the same time that it had improved its labour practices, perhaps due to the increased per unit costs.31 Apple
began to give more and more volume to rival supplier Pegatron. Apple argued that Tim Cook, himself a supply

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chain management expert, realized the need for supply chain diversity to reduce the dependence on a single
supplier and to spread risks.32 Furthermore, some had hinted that the close relationship between Apple and
Foxconn was partly built on the personal relationship between Steve Jobs and the president of Foxconn; when
Jobs passed away, so did some of the inter-organizational relationship.33

However, the reason for the switch from Foxconn to Pegatron might have been less straightforward. It was
suggested that Pegatron was willing to accept thinner margins than Foxconn,34 which in turn allowed Apple
to produce a cheaper version of the iPhone 5 series, the iPhone 5c, while not undermining its profitability.
According to the Wall Street Journal, Pegatron accepted a margin of 0.8 per cent, while Foxconn had been
seeking 1.7 per cent.35 Interestingly Apple’s own gross margin was 38.6 per cent as of 2014 and 37.6 per
cent in 2013.36 Some observers argued that with such small margins it was little wonder that suppliers
breached costly regulations in the area of labour rights.37

A third set of challenges arose from differences in the companies’ objectives, particularly their objectives
in terms of CSR. However, because of Apple’s huge size, stock market value, visibility, and (partly self-
created) image, it faced more scrutiny than perhaps any company in the world. Writing in alphr, Barry
Collins argued:

Apple doesn’t outright deny any of those allegations. Yet, it does pose the question: why pick on
us? . . . It’s not the only tech company using cheap labour in Asian factories: in fact, show me one
that isn’t. Panorama could equally have substituted Apple for Microsoft, Samsung, Sony, or even
a British firm such as Tesco, which has its Hudl38 tablets made in the same factories as Apple does.
Picking on Apple because it’s the only company that’s made a public commitment to improving
worker welfare seems a little perverse.39

Simon Rockman of The Register commented, “while Apple may well be right . . . the difference lies in the
gap between what the richest company in the world has said it would do, and what it has achieved in
reaching the standards it set for itself.”40 According to Brad Reed:

The point of all this isn’t to say that Apple is an “evil” company or that anyone should feel guilty
buying an iPhone or a Mac. I’m also not calling on Apple to pull manufacturing operations out of
China since I know how important these jobs are to people who work at them.

However, there’s nothing wrong with insisting that our favourite companies — whether we’re
talking Apple, Samsung or Google — do better on issues of worker treatment, especially when
they’ve repeatedly vowed to do so. Apple makes insane profit margins on its iPhones and it can
certainly afford to commit more resources for ensuring that the people who manufacture them
aren’t forced to work 18 days in a row.41

Reed’s comments in fact seemed to resonate with the company itself because even Williams mentioned in
his letter that Apple “can still do better.”42

Finally, it was important to acknowledge that individuals differed in their assessment of how much attention
should be paid to these labour rights issues and what constituted an acceptable level of working conditions.
According to a New York Times article, Richard Locke, a professor at Brown University, “had studied working
conditions for many companies, and Apple has gone beyond standard practices.”43 But at the same time, Li
Qiang, the executive director of CLW, said, “Apple is always finding excuses for its unrealized commitments.
We are focused on what Apple does, not what it says.” 44 Such differences in perception were almost

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impossible to avoid in cases like this, but they did pose a fourth set of challenges faced by Apple: Did it want
to satisfy its harshest critics, or was it enough to please a mainstream Apple consumer?

“Designed by Apple in California” and “Assembled in China,” read a statement imprinted on the back of
Apple’s iPhones and iPads and on the bottom of its Mac products, neatly capturing Apple’s strategy of
offshore outsourcing. As of 2004, with the closure of its very last U.S. manufacturing line, Apple was
outsourcing all of its production and assembly lines to global suppliers, mainly in China.45 Prior to that,
Apple was rather proud of its products being produced in America. But like other western companies, Apple
found it difficult to resist the lure of offshore outsourcing.

It was estimated that around 90 per cent of the iPhone’s parts were manufactured overseas. German and
Taiwanese contractors provided advanced semiconductors, while Korean suppliers provided memory and
display panels. Those components, coupled with chipsets supplied from Europe and elsewhere, were
ultimately assembled in China.46 Apple’s sophisticated supply chain offered the needed flexibility to meet
fluctuating demand. Just before the debut of the first iPhone in 2007, Steve Jobs realized that the screen
material needed be changed from plastic to glass so it would not get scratched. He was quoted as saying, “I
want a glass screen. . . . I want it perfect in six weeks.”47

While no American company could produce the glass screens in a month, a Chinese company was able to
make them. To meet Apple’s last-minute changes and orders, thousands more workers were needed
overnight, leading to work shifts being increased at short notice.48 As put by Jennifer Rigoni, Apple’s
former worldwide supply demand manager, “They [the suppliers] could hire 3,000 people overnight. . . .
What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”49

It also helped that wages in the Chinese factories were very low. According to CLW’s 2013 report, the base
wage of Pegatron factory workers in Shanghai was the equivalent of approximately $1.50 per hour.50 The
same report disclosed that most workers wanted to leave the factory after having experienced such harsh
working conditions. In one of the Pegatron factories, AVY in Suzhou, more than a quarter of the new
workers left within a two-week period.51

Offshoring, however, was not looked upon favourably in the United States because it was considered to
amount to a loss of job opportunities. In February 2011, when the president of the United States, Barrack
Obama, asked Jobs, “Why can’t that work come home?” Jobs answered conclusively, “Those jobs aren’t
coming back.”52 An anonymous executive of Apple gave a sullen response saying, “We shouldn’t be
criticized for using Chinese workers. . . . The United States has stopped producing people with the skills
we need.”53 The company overtly announced that moving work overseas was an inevitable choice and the
continuing relocation of jobs was driven not only by lower costs.54

Despite the public controversy about Apple’s choices and the loss of domestic job opportunities in the
United States, the relocation seemed to make perfect sense. Offshore suppliers in China, India, and
elsewhere had a proven ability to produce what was needed, whereas the United States did not have enough
capable and skilled workers.55 To some extent, it was simply a numbers game. But Apple also argued that
it could produce more jobs in the United States through offshoring because American workers could then
focus on higher value-added activities such as research and design.56

Offshore outsourcing might have significantly reduced Apple’s operating costs. At the same time, however,
it also decreased Apple’s level of control and monitoring over manufacturing processes and practices.

Although Apple prepared codes of conduct and enforced its suppliers to comply with those standards, in the
absence of day-to-day monitoring, compliance was difficult to ensure. Of course, this problem was faced not
only by Apple; Samsung and other smartphone producers often sourced from these same factories. But doing
so represented a fundamental trade-off that any such firm would need to deal with.

The CSR failures did not seem to affect Apple’s business performance. In 2015, it topped the Forbes list of “The
World’s Most Valuable Brands,”57 and ranked 12th in the “Global 2000” list,58 and 55th among America’s Best
Employers.59 Furthermore, it still had unshakable customer loyalty that did not seem to have been negatively
affected by the alleged socially irresponsible actions of its key suppliers. This situation invited the question: How
much should Apple really care about socially irresponsible actions of its suppliers?

Given the circumstances, Apple and Williams still had several options available. But what option would
give Apple the best outcomes? Should Apple continue as it was and take for granted the occasional bit of
negative publicity? The company had perhaps already done more than its fair share to tackle CSR problems
in its supply chain.60 On the other hand, maybe Apple could, and should, do more to tackle what had turned
out to be a complex issue. Should Apple seek to work more to improve working conditions, such as by
working with NGOs and transnational organizations? Should it engage in even more monitoring? Perhaps
it could even go so far as to bring production in-house, in an attempt to regain control. A more radical
solution would be to bring manufacturing back to the United States, which might become possible in the
future, given increased levels of automation and robotization. But how would such changes affect Apple’s
profit margins — and perhaps even more importantly, would Apple’s many customers in China respond
negatively to such a move? ASSIGNMENT QUESTIONS1. Identify the multiple levels of analysis at play for Apple as it addresses the CSR challenges in its supply chain.2. Is Apple responsible for the alleged human rights violations that occurred?3. Would onshoring, insourcing, or a combination of the two represent a suitable response to Apple’s problem?4. If Apple continues on the current path, what should it do differently?5. Is it reasonable for Apple to apply different ethical standards to different countries?6. Should firms such as Apple maximize their profits, or should they sacrifice some profits to do good?7. Have these CSR problems at Apple had a meaningful impact on the bottom line?8. What is the role of media, including social media, in shaping CSR expectations?9. Does Apple face an industry-specific issue, or do the same issues appear in other industries?10. If you were in the position of Jeff Williams, what, if anything, would you do differently?

Source: Apple Inc., “Form 10-K: For the Fiscal Year Ended September 27, 2014,” EDGAR Online, accessed December 17, 2015.

Source: Apple Inc., “Form 10-K: For the Fiscal Year Ended September 27, 2014,” EDGAR Online, accessed December 17, 2015.

2008 2009 2010

2011 2012 2013 2014

Net sales 37,491 42,905 65,225 108,249 156,508 170,910 182,795
Net income 6,119 8,235 14,013 25,992 41,733 37,037 39,510

–

20,000

40,000

60,000

80,000

100,000

120,000

140,000
160,000
180,000
200,000

Net sales Net income

20,000
40,000
60,000
80,000
100,000
120,000

iPhone iPad Mac iPod iTunes,
Software and

services

Accessories

Net Sales

2011 2012 2013 2014

1 BBC News, “Apple Accused of Failing to Protect Workers,” YouTube video, 3:03, December 18, 2014, accessed December
17, 2015, www.youtube.com/watch?v=kSvT02q4h40.
2 Supplier Responsibility 2014 Progress Report, Apple Inc., January 2014, 4, accessed December 17, 2015,
www.apple.com/supplier-responsibility/pdf/Apple_SR_2014_Progress_Report .
3 Supplier Responsibility 2015 Progress Report, Apple Inc., January 2015, 5, accessed December 17, 2015,
www.apple.com/supplier-responsibility/pdf/Apple_Progress_Report_2015 .
4 Kathryn Dill, “The Companies with the Best CSR Reputations,” Forbes, December 8, 2014, accessed January 10, 2016,
www.forbes.com/sites/kathryndill/2014/12/08/the-companies-with-the-best-csr-reputations/.
5 All figures are in US$ unless otherwise specified; Graham Ruddick, “Apple Could be Worth $1 Trillion, Says Wall Street,”
Telegraph, March 23, 2015, accessed October 16, 2015, www.telegraph.co.uk/technology/apple/11490367/Apple-could-be-
worth-1-trillion-says-Wall-Street.html.
6 Adeyemi Adepetum, “Smartphone Industry Earns $380b Revenue 2014,” The Guardian, June 3, 2015, accessed October
16, 2015, www.ngrguardiannews.com/2015/06/smartphone-industry-earns-380b-revenue-in-2014/.
7 Rob Price, “Apple Is Taking 92% of Profits in the Entire Smartphone Industry,” Business Insider UK, July 13, 2015, accessed
October 16, 2015, http://uk.businessinsider.com/apple-92-percent-profits-entire-smartphone-industry-q1-samsung-2015-7.
8 Simon Sharwood, “Lenovo Tops China’s Smartphone Market in Just Six Months,” The Register, October 30, 2012, accessed
February 26, 2016, www.theregister.co.uk/2012/10/30/lenovo_chinas_number_one_smartphone_maker/.
9 T. Florin, “This Is Xiaomi’s Impressive Army of Smartphones,” phoneArena, January 31, 2015, accessed January 10, 2016,
www.phonearena.com/news/This-is-Xiaomis-impressive-army-of-smartphones_id65427.
10 David Gilbert, “Chinese Brands, Huawei, Lenovo, Xiaomi and More Dominate Global Smartphone Industry,” International
Business Times, February 9, 2015, accessed January 7, 2016, www.ibtimes.com/chinese-brands-huawei-lenovo-xiaomi-
more-dominate-global-smartphone-industry-2078834.
11 Eva Dou, “Xiaomi, China’s New Phone Giant, Takes Aim at World,” The Wall Street Journal, June 7, 2015, accessed January
7, 2016, www.wsj.com/articles/xiaomi-chinas-new-phone-giant-takes-aim-at-world-1433731461.
12 Lior Ronen, “Xiaomi a Threat to Apple, Samsung Smartphone Dominance,” Amigobulls, November 12, 2014, accessed
February 20, 2016, http://amigobulls.com/articles/xiaomi-a-threat-to-apple-samsung-smartphone-dominance.
13 Owen W. Linzmayer, “30 Pivotal Moments in Apple’s History,” Macworld, March 30, 2006, accessed January 7, 2016,
www.macworld.com/article/1050112/30moments.html.
14 Henry Blodget, “In Case You Had Any Doubts about Where Apple’s Profit Comes From,” Business Insider, August 2, 2012,
accessed 7 January, 2016, www.businessinsider.com/iphone-profit-2012-8?IR=T.
15 Matthew Sparkes, “iPhone Owners Admit Having ‘Blind Loyalty’ to Apple,” The Telegraph, February 12, 2014, accessed
December 17, 2015, www.telegraph.co.uk/technology/apple/10632787/iPhone-owners-admit-having-blind-loyalty-to-Apple.html.
16 Malcolm Moore, “‘Mass Suicide’ Protest at Apple Manufacturer Foxconn Factory,” The Guardian, January 11, 2012,
accessed December 17, 2015, www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-
manufacturer-Foxconn-factory.html.
17 TWD = Taiwanese dollar; US$1 = TW$30.29 on December 30, 2011.
18 TWD = Taiwanese dollar; US$1 = TW$29.03 on December 31, 2012.
19 TWD = Taiwanese dollar; US$1 = TW$29.83 on December 31, 2013.
20 China Labor Watch, Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple, July
29, 2013, accessed December 17, 2015, www.chinalaborwatch.org/report/68.
21 Paul Mozur, “Apple’s Response to Latest Supplier Labor Abuse Allegations,” The Wall Street Journal, July 29, 2013,
accessed January 7, 2016, http://blogs.wsj.com/chinarealtime/2013/07/29/apples-response-to-pegatron-worker-allegations/.
22 Associated Press reporter, “Chinese Workers’ Group Accuses Apple of Ignoring Pledges to Protect Staff and Continuing to
Use Sweatshops to Make iPhones,” Daily Mail, July 29, 2013, accessed February 3, 2015, www.dailymail.co.uk/news/article-
2380881/Chinese-workers-group-accuse-Apple-ignoring-pledges-protect-staff-continuing-use-sweatshops-make-
iPhones.html.
23 Richard Bilton, “Apple ‘Failing to Protect Chinese Factory Workers’,” BBC News, December 18, 2014, accessed January 7,
2016, www.bbc.co.uk/news/business-30532463.
24 Rhiannon Williams, “Read: Apple’s Letter to UK Staff over Chinese Factory Conditions,” The Telegraph, December 19, 2014,
accessed December 20, 2014, www.telegraph.co.uk/technology/apple/11303406/Read-Apples-letter-to-UK-staff-over-
Chinese-factory-conditions.html.
25 Supplier Responsibility 2014 Progress Report, op. cit.
26 Apple Inc., “Supplier List 2015,” 2015, accessed January 7, 2016, www.apple.com/supplier-
responsibility/pdf/Apple_Supplier_List_2015 .
27 Ewan Spence, “BBC Attacks Apple over Familiar Allegations in Panorama Investigation Over Working Conditions,” Forbes,
December 18, 2014, accessed December 17, 2015, www.forbes.com/sites/ewanspence/2014/12/18/bbc-attacks-apple-with-
familiar-allegations-in-panorama-investigation-over-working-conditions/.
28 Ewan Spence, “Apple Loop: iOS 8.2 Details, Apple’s Working Conditions Attacked, Ignore Apple Watch,” Forbes, December
18, 2014, accessed December 17, 2015, www.forbes.com/sites/ewanspence/2014/12/19/apple-news-digest-ios-8-2-preview/.
29 Noel Randewich and Reiji Murai, “GT Advanced Bankruptcy Offers Warning to Apple Suppliers,” Reuters, October 8, 2014,
accessed January 7, 2016, www.reuters.com/article/us-apple-gt-advanced-tech-idUSKCN0HX0XV20141008.

30 Charles Duhigg and David Barboza, “In China, Human Costs Are Built into an iPad,” The New York Times, January 25,
2012, accessed December 17, 2015, www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-
for-workers-in-china.html.
31 Eva Dou, “Apple Shifts Supply Chain Away From Foxconn to Pegatron,” The Wall Street Journal, May 29, 2013, accessed
March 7, 2016, www.theinquirer.net/inquirer/news/2271769/apple-shifts-production-from-foxconn-to-pegatron
32 Mikey Campbell, “Apple Reportedly Looking to Pegatron in Supply Chain Diversification Away From Foxconn,” Apple Insider,
May 29, 2013, accessed January 7, 2016, http://appleinsider.com/articles/13/05/29/apple-reportedly-looking-to-pegatron-in-
supply-chain-shift-away-from-foxconn.
33 Dou, “Apple Shifts Supply Chain Way from Foxconn to Pegatron,” op. cit.
34 Neil McAllister, “Apple Says ‘Zai Jian’ to Foxconn, Taps Pegatron for New iPhones,” The Register, May 30, 2013, accessed
January 7, 2016, www.theregister.co.uk/2013/05/30/apple_taps_pegatron_for_cheaper_iphones/.
35 Dou, “Apple Shifts Supply Chain Away From Foxconn to Pegatron,” op. cit.
36 Apple Inc., “Form 10-K for the Fiscal Year Ended September 27, 2014,” accessed March 7, 2016,
http://investor.apple.com/secfiling.cfm?filingid=1193125-14-383437.
37 Aditya Chakrabortty, “The Woman Who Nearly Died Making Your iPad,” The Guardian, August 5, 2013, accessed January
7, 2016, www.theguardian.com/commentisfree/2013/aug/05/woman-nearly-died-making-ipad; Sarah Mishkin, “Overtime Work
at Foxconn Still Beyond China’s Legal Limits,” Financial Times, December 12, 2013, accessed January 7, 2016,
www.ft.com/cms/s/0/af799a06-6334-11e3-a87d-00144feabdc0.html#axzz3wZbqcdNt.
38 The Hudl was a tablet computer produced by Pegatron for the British supermarket chain Tesco.
39 Barry Collins, “Bad Apple or the Best of a Bad Bunch? The Sad Reality about Apple’s Broken Promises From BBC
Panorama,” Alphr, December 19, 2014, accessed December 17, 2015, www.alphr.com/smartphones/1000196/bad-apple-or-
the-best-of-a-bad-bunch-the-sad-reality-about-apples-broken.
40 Simon Rockman, “Apple v BBC: Fruity Firm Hits Back over Panorama Drama,” The Register, December 19, 2014, accessed
December 17, 2015, www.theregister.co.uk/2014/12/19/apple_vs_beeb_fruitier_hits_back_on_worker_rights_wrongs_issue/.
41 Brad Reed, “Apple’s Response to the BBC’s Sweatshop Labor Report Is Completely Tone Deaf,” BGR, December 19, 2014,
accessed December 17, 2015, http://bgr.com/2014/12/19/apple-china-factory-conditions-response/.
42 Williams, op. cit.
43 Brian X. Chen, “BBC Documentary Shows Harsh Conditions for Workers in iPhone Factories,” The New York Times,
December 19, 2014, accessed December 17, 2015, http://bits.blogs.nytimes.com/2014/12/19/bbc-documentary-shows-harsh-
conditions-for-workers-in-iphone-factories/.
44 China Labor Watch, “Apple’s Unkept Promises on Working Conditions Continue,” press release, December 19, 2014,
accessed December 17, 2015, www.chinalaborwatch.org/newscast/421.
45 Marcelo Prince and Willa Plank. “A Short History of Apple’s Manufacturing in the U.S,” The Wall Street Journal, December 6,
2012, accessed January 7, 2016, http://blogs.wsj.com/digits/2012/12/06/a-short-history-of-apples-manufacturing-in-the-u-s/.
46 Charles Duhigg and Keith Bradsher, “How the U.S. Lost out on iPhone Work,” The New York Times, January 21, 2012,
accessed February 21, 2016, www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=0.
47 Henry Blodget, “Steve Jobs Freaked out a Month Before First iPhone was Released and Demanded a New Screen,”
Business Insider, January 22, 2012, accessed February 20, 2016, www.businessinsider.com/steve-jobs-new-iphone-screen-
2012-1?IR=T.
48 Ibid.
49 Duhigg and Bradsher, op. cit.
50 China Labor Watch, “Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple,” op.
cit.
51 Ibid.
52 Duhigg and Bradsher, op. cit.
53 Ibid.
54 Josh Ong, “Apple’s Overseas Manufacturing Operations Offer Flexibility, Not Just Savings — Report,” Appleinsider, January
22, 2012, accessed October 16, 2015, http://appleinsider.com/articles/12/01/22/apples_overseas_manufacturing_
operations_offer_much_needed_flexibility_not_just_savings.
55 Drake Baer, “Steve Jobs and President Obama Had a Dinner Together in 2011 That May Have Changed the Course of US
History,” Business Insider, January 8, 2015, accessed February 20, 2016, http://uk.businessinsider.com/when-steves-jobs-
and-barack-obama-dined-2015-1?r=US&IR=T.
56 Ryan Avent, “Apple and the American Economy,” The Economist, January 23, 2012, accessed February 20, 2016,
www.economist.com/blogs/freeexchange/2012/01/supply-chains.
57 “The World’s Most Valuable Brands,” Forbes, 2015, accessed January 7, 2016, www.forbes.com/powerful-brands/list/.
58 “The World’s Biggest Public Companies,” Forbes, 2015, accessed January 7, 2016, www.forbes.com/global2000/list/#tab:overall.
59 “America’s Best Employers,” Forbes, 2015, accessed March 7, 2016, www.forbes.com/sites/clareoconnor/2015/03/25/
americas-best-employers-2015/#157418596ceb.
60 Richard Welford, “Media Misreporting and Apple’s CSR,” CSR Asia, accessed February 20, 2016, www.csr-
asia.com/test/home/csr-asia-weekly-news-detail.php?id=11962.

8B16M040

Teaching Note

APPLE AND ITS SUPPLIERS: CORPORATE SOCIAL RESPONSIBILITY

Sun Hye Lee, Michael J. Mol, and Kamel Mellahi wrote this teaching note as an aid to instructors in the classroom use of the case
Apple and Its Suppliers: Corporate Social Responsibility, No. 9B16M040. This teaching note should not be used in any way that would
prejudice the future use of the case.

Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-03-22

SYNOPSIS

In a 2014 documentary,

Apple Inc.

(Apple), the California-based multinational technology company known
for its innovative hardware, software, and online services, was implicated in alleged human rights violations
at Pegatron, a large Apple supplier that specialized in the assembly of iPhones. These allegations followed
similar well-publicized violations in 2009, at Foxconn, another major Apple supplier. Although Apple had
promised to overcome these issues, the situation had clearly proven to be difficult to overturn. The case
explores Apple’s options in response to these new violations. Should it have neglected the accusations and
pointed to its existing efforts? Could it have done more? Should it perhaps have revised its offshoring and
outsourcing strategy? Was the blame attributed to Apple fair? The case offers insights into the complexity of
corporate social responsibility issues in cross-border, inter-organizational settings.

TEACHING OBJECTIVES

The case offers students the opportunity to examine in depth the challenges Apple faces in managing
offshore and outsourced operations, especially in terms of how these challenges affect corporate social
responsibility (CSR) outcomes. Set against the backdrop of two major CSR failures, Apple is possibly the
world’s best example for this purpose because of both the high expectations it faces and the plentiful
financial and other resources it has available to tackle this problem. The lessons from this case study apply
to a wide range of firms engaged in offshoring and outsourcing and to the management of CSR across
institutional and organizational boundaries.

POSITION IN COURSE

This case can be used in courses at undergraduate, graduate, and executive levels. The case is most suitable
in ethics and CSR courses but is also suitable in courses on strategic management, international business,
and operations management. It can also be used in general courses and in more specialized courses, for

This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization.

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instance, in courses on global supply chain management, outsourcing, or CSR implementation. It is
especially useful for highlighting the complexities of managing in a global context and across multiple
levels of analysis. The case is best used a little later on in courses, when students are comfortable applying
their knowledge to a relatively complex issue.

RELEVANT READINGS

Ruth V. Aguilera, Deborah E. Rupp, Cynthia A. Williams, and Jyoti, Ganapathi, “Putting the S Back in

Corporate Social Responsibility: A Multilevel Theory of Social Change in Organizations,” Academy of
Management Review 32, no. 3 (2007): 836–863.

Ron Babin and Brian Nicholson, “Corporate Social Responsibility in Global IT Outsourcing: A Case Study
of Inter-firm Collaboration,” in Information Systems Outsourcing: Towards Sustainable Business Value,
Rudy Hirschheim, Armin Heinzl, and Jens Dibbern, eds. (Berlin: Springer Berlin Heidelberg, 2014):
431–449.

Lisa Jones Christensen, Alison Mackey, and David Whetten, “Taking Responsibility for Corporate Social
Responsibility: The Role of Leaders in Creating, Implementing, Sustaining, or Avoiding Socially
Responsible Firm Behaviors,” The Academy of Management Perspectives 28, no. 2 (December 2013):
164–178.

Jonathan Doh, “Offshore Outsourcing: Implications for International Business and Strategic Management
Theory and Practice,” Journal of Management Studies 42, no. 3 (May 2005): 695–704.

R. Edward Freeman, Strategic Management: A Stakeholder Approach (Marshfield, MA: Pitman, 1984).
Sanjay Sharma, “Managerial Interpretations and Organizational Context as Predictors of Corporate Choice

of Environmental Strategy,” The Academy of Management Journal 43, no. 4 (August 2000): 681–697.
Justin Tan, “Institutional Structure and Firm Social Performance in Transitional Economies: Evidence of

Multinational Corporations in China,” Journal of Business Ethics 86 (2009): 171–189.

Further Resources

The instructor can draw on many other resources during, before, or after class. At the time of writing of this
case the BBC Panorama program’s episode on Apple was available in full on the Internet.1 Fragments of
the program and other videos on this topic were available from YouTube2 and similar websites. The length
of these fragments varies and instructors can pick the fragment that best suits the needs of their class. Apple
has produced various documents that address its CSR policies. Several academic pieces have looked at this
issue, and the case study authors have also written about this issue. The case includes some useful websites
that the instructor or students can explore.

ASSIGNMENT QUESTIONS

1. Identify the multiple levels of analysis at play for Apple as it addresses the CSR challenges in its supply

chain.
2. Is Apple responsible for the alleged human rights violations that occurred?
3. Would onshoring, insourcing, or a combination of the two represent a suitable response to Apple’s

problems?

1 BBC News, “Apple’s Broken Promises,” BBC iPlayer, 1:00:00, December 18, 2014. Accessed March 7, 2016,
http://www.pcmag.com/videos/2015/7/22/apples-broken-promises-pcmag-gr.
2 BBC News, “Apple Accused of Failing to Protect Workers,” YouTube video, 3:03, posted by “BBC News,” December 18,
2014, accessed December 17, 2015, https://www.youtube.com/watch?v=kSvT02q4h40.

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4. If Apple continues on the current path, what should it do differently?
5. Is it reasonable for Apple to apply different ethical standards to different countries?
6. Should firms such as Apple maximize their profits, or should they sacrifice some profits to do good?
7. Have these CSR problems at Apple had a meaningful impact on the bottom line?
8. What is the role of media, including social media, in shaping CSR expectations?
9. Does Apple face an industry-specific issue, or do the same issues appear in other industries?
10. If you were in the position of Jeff Williams, what, if anything, would you do differently?

TEACHING PLAN

Depending on the audience and the level of depth the instructor aims for, the case should be taught over 75
to 90 minutes. The instructor may start by showing a fragment from the BBC documentary (see the “Further
Resources” section above). In our experience, it helps to begin the discussion by asking students their view
of Apple and its products. Given that many students are likely to be Apple users, this discussion should not
be very difficult. The instructor might ask “Were you aware of some of these issues with Apple’s products?”
or “As an Apple customer, have you considered how your Apple product was produced?” or “Does knowing
this background on Apple’s supply chain change your views of Apple as a company and of the Apple
product you have purchased?” Many students might be aware of some of the basics of this case from news
reports, but most students will not be familiar with the finer details of the case.

Key Issues in the Case

The most interesting and important issues in the case that should be brought out in class include the
following:

 The trade-off between being profitable and doing well for society at large
 The challenges of matching CSR practices to CSR expectations
 The challenges of managing and monitoring outside suppliers
 The hard realities of managing CSR across institutional boundaries
 The complexity of managing CSR issues across multiple levels

Other issues include the following:

 The nature of competition in the smartphone and tablet industry
 The growth of China and other emerging countries as a manufacturing site, and the future of

manufacturing in developed countries
 Inconsistencies in the identity of Apple
 The role of media (including social media) in debates around CSR
 The role of non-governmental organizations (NGOs) and transnational organizations in dealing with

CSR issues
 The effectiveness of self-regulation in dealing with CSR issues

A substantive discussion can then take one of numerous directions. We suggest several leading questions
the instructor could pose and the content area of courses for which these questions are most suited (see
Exhibit TN-1). An alternative to the usual question-and-answer approach is to follow a debate model, which
we discuss below.

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ANALYSIS

1. Identify the multiple levels of analysis at play for Apple as it addresses the CSR challenges in

its supply chain.

An alternative way of asking this question is the following: What levels of analysis are most important to
understanding this case? A unique feature of Apple’s situation is the complexity of the problems the company
needs to address. We suggest that four levels of analysis are most important here: (1) the key managers (their
motives, preferences, and the efforts they invest in pursuing CSR issues); (2) the firm — Apple — (especially
the huge demands from its stakeholders to engage in CSR); (3) inter-organizational relations (especially the
co-operation between Apple and Pegatron, and between Apple and Foxconn, and the exploitation of inter-
organizational dependence by Apple) and inter-organizational differences (between Apple and Pegatron and
between Apple and Foxconn); and (4) the country level (especially the differences between the United States
and China, in both what formal institutions are supposed to look like and what they actually look like). The
section in the case titled “CSR Challenges” provides more detail on these levels.

Based on our experience with teaching the case, students are likely to find it challenging to think through
all of these levels simultaneously. The instructor should consider students’ abilities and position this
discussion question either at the beginning of the class or at the end of the class. If used at the beginning of
the class, the instructor can provide some guidance to students during the discussion. Students will then be
primed to consider the multiple levels during the remainder of the case discussion. If used at the end of the
class, this discussion question can be used to wrap up the class discussion.

Instructors who want to link this question to a discussion of outsourcing and offshoring choices may find it
useful to develop the table in Exhibit TN-2 together with students, or to simply present it to them.

2. Is Apple responsible for the alleged human rights violations that occurred?

To answer this question, we suggest having students consider the players and the dynamics at each level
discussed above. For example, at the institutional level, problems with enforcing existing regulations and
the perceived widespread use of these practices throughout China might explicitly and implicitly nudge
both employers and employees to accept and tolerate poor practices.

At the inter-organizational level, students should consider the relationship characteristics of the two parties.
Because Apple does not have any ownership over Pegatron, students might argue that Apple lacks any direct
control over what happens in the factories and therefore does not bear any responsibility. However, students
need to understand that Apple might, depending on the relationship’s dynamic, have some, albeit indirect,
control in terms of such factors as the level of dependence, bargaining power, and switching costs. The
instructor should encourage students to tease out the non-ownership control mechanisms that Apple can apply.

At the organizational level, Apple has more financial resources than any other company in the industry,
which should allow it more flexibility to deal with CSR issues. The instructor can encourage students to
explore whether the stakeholders of each company should share the responsibility for their ignorance,
indifference, or even participation in this problem.

And finally, at the individual level, the class could discuss more micro-level factors, such as the personal
motives, values, and dedication of the managers who actually supervise the workers in factories and the
managers of Apple, such as Williams who was directly involved in decision-making processes on
outsourcing, procurement, and CSR.

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By bringing these levels together, students should become aware that the answer to the question is not
straightforward. Although it is true that these are Apple products, Apple’s influence over the actual practices
of its suppliers located in China does have its limits.

3. Would onshoring, insourcing, or a combination of the two represent a suitable response to

Apple’s problems?

One way to answer this question is to discuss the advantages and disadvantages of the four different
governance modes noted in Exhibit TN-2: domestic insourcing, domestic outsourcing, offshore insourcing,
and offshore outsourcing. The discussion of this question offers a good opportunity for students to
understand and differentiate these four governance modes. The pros and cons can be discussed in terms of
costs, level of control, compliance, co-operation, communication, and labour costs, as can be seen in Exhibit
TN-3. The discussion may be finalized by comparing the advantages and disadvantages of the different
governance modes.

The instructor may also extend this discussion to a more conceptual level, by introducing the concepts of
production and transaction costs as promoted in transaction cost economics: Production costs are lower with
outsourcing and especially offshore outsourcing, but transaction costs are lower with insourcing and especially
domestic insourcing. The outsourcing discussion can also be approached in terms of resources and
capabilities. For example, it can be argued that while Apple had strong resources and capabilities in research
and development and in marketing, its suppliers were particularly strong in manufacturing; thus, Apple should
not involve itself in production, as suggested by Ram Mudambi’s “smile of value creation,”3 which the
instructor might choose to illustrate during class. It is therefore not obvious that insourcing is the answer. The
discussion about whether to continue offshoring is much less obvious. In our experience, some students
believe strongly that automation, or robotization, and returning activities to the United States is the answer,
while others want to stick to the existing governance mode of offshore outsourcing. Both options have
advantages and disadvantages, and several unknown factors are at work, such as how quickly labour costs
will rise in China and the pace of technological change in robot technologies.

4. If Apple continues on the current path, what should it do differently?

The option of Apple continuing on its current path is essentially an alternative to the options of onshoring,
insourcing, or a combination of the two. It might be a good idea for the instructor to start this discussion by
enumerating what Apple had been doing so far, such as publishing a responsibility report, providing
suppliers with a code of conduct, and monitoring suppliers through an audit. Apple could have several
additional options. The instructor may need to guide students to broaden their view beyond firm-level
solutions to seek solutions at the industry level or even broader. For example, Apple could benchmark the
practices of other industries, such as the garment and food industries. Because those industries have dealt
with similar issues for a long period of time (e.g., Nike’s historical issues with child labour and sweatshops),
their responses may offer a way forward. Firms in these industries have recently decided to collaborate to
set up industry standards and enforce suppliers to adopt unified rules and requirements.

Also, many NGOs have additional information and long-standing and extensive experience in handling
labour issues and workers’ rights in emerging and developing countries, and are often ready to help and co-

3 Ram Mudambi, “Offshoring: Economic Geography and the Multinational Firm,” Journal of International Business Studies 38,
no. 1 (2007): 206, accessed February 21 2016, http://astro.temple.edu/~rmudambi/Publications/Mudambi-Offshoring-
overview .

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operate. Apple could also approach local NGOs that specialize in defending and promoting labour rights
and have a presence in host countries to advise and help deal with region-specific challenges such as child
labour and racial or gender discrimination. Students could discuss the option of forging a strategic
partnership with NGOs.

Apple could also pursue other options. For instance, it could start to tie CSR outcomes more directly to how
much it pays its suppliers by providing a substantial bonus for good behaviour. This option seems feasible
given the profit margins Apple enjoyed in 2014. Apple could also consider implementing operational
measures, such as permanently placing Apple employees inside supplier facilities. One key aspect here
concerns Apple’s historical willingness to do so. Some students might argue that, for Apple, driving down
cost levels was more important than improving CSR outcomes.

5. Is it reasonable for Apple to apply different ethical standards to different countries?

Students may answer this question in a variety of ways. They may first discuss the issue of human rights
and humane work practices from the perspectives of universality, relativity, or relative universality.
Students can draw initially from the discussion of institutions (questions 1 and 2), and then be encouraged
to provide an in-depth analysis of how institutional factors play out differently in different institutional
settings.

Those students who take the universality perspective may argue that Apple should hold the same ethical
standards, and workers in developing and emerging economies should not be subjected to practices that are
considered to be unethical in the United States. According to this perspective, Apple was therefore engaged
in unethical practices.

Students who take the relativity perspective are likely to argue that Apple suppliers applied standards that
were acceptable in the host country. However, this suggestion is not correct. Pegatron also violated Chinese
laws and norms, and its alleged practices may be considered to be unacceptable in China.

Students who take a relative universality perspective would argue that firms such as Apple can adopt the
concept of universal ethical standards but may be permitted variations across countries. A practice that is
considered to be unethical in the United States may not necessarily be considered to be unethical in China.
It is possible for one to accept the same ethical principles and standards in the United States and China and
allow for variations in the practice because of differences in local circumstances.

The instructor might suggest that students research the practices by other companies and other industries.
For example, NIKE sets a minimum worker age in its codes of conducts, but suggests that its suppliers
abide by their own national laws when the legal minimum age is higher.

Drawing on the information provided in the case, students may then discuss the institutional peculiarities
of the countries where Apple’s suppliers are located. At the end, students may discuss the efficacy of
international standards applied by international firms such as Apple.

6. Should firms such as Apple maximize their profits, or should they sacrifice some profits to do

good?

The instructor should guide the class discussion to ensure it is at the firm level and focuses on the power
and interest of Apple’s diverse stakeholders. For example, the instructor can encourage students to consider

Page 7 8B16M040

Apple’s stakeholders and their interests in — and their power to influence — Apple’s CSR activities. The
instructor can show the Apple stakeholder map (see Exhibit TN-4), and encourage students to critically
engage with the notion that Apple’s foremost goal is to generate profits for its shareholders. However, at
the same time, the instructor needs to ensure that students also consider that customers, employees,
suppliers, local communities, and others might also be important stakeholders, similar to Apple’s
shareholders. Clearly, this question has no right or wrong answer; any individual’s answer will reflect
deeply held beliefs about the role of corporations in society.

Students can also discuss the benefits and shortcomings of both strategies (profit maximization and doing
good) in the short term and in the long term. Neglecting social responsibilities can save costs that arise from
monitoring and higher labour costs, thereby helping to achieve profit maximization in the short term, which
might please the shareholders. However, in the long run, such shortcuts could harm the company’s
reputation and be costlier. Therefore, students might reach the conclusion that being more socially
responsible could help in terms of pursuing shareholder value maximization in the longer run. Still, in the
absence of clear numbers and measures for the specific case of Apple, it will be difficult to reach a firm
conclusion. The primary objective of this question therefore is to have students consider the trade-offs
between doing well and doing good.

7. Have these CSR problems at Apple had a meaningful impact on the bottom line?

The short answer is that so far, the CSR issues have likely not affected Apple’s bottom line. In 2014, Apple
was more profitable than ever. But the continuation of the problems depicted in the case may have an impact
in the long term. To understand the short-term impact on profits, the instructor can focus the discussion on
the bargaining power of suppliers and buyers.

Because of consumers’ strong loyalty to Apple products, the bargaining power of buyers was low. Students
could research consumers’ responses to the events described in the case; however, the consumer impact
appears to be limited. Again, the instructor might find it helpful to bring in the perspective of the student as
a consumer (many students were aware of the issues, but still decided to purchase Apple’s products; why?).
Here, the information provided in the case regarding the level of consumer loyalty toward Apple products
should be helpful. Students can then easily deduce that consumers do not easily reject Apple products
because of the human rights issues that took place at one of its outside suppliers. Although Apple was
dependent on Foxconn and Pegatron in an operational sense, Foxconn and Pegatron are even more
dependent on Apple, as is evident from the case.

Also, considering that Apple was able to spread its orders between Foxconn and Pegatron and that assembly
processes do not require highly sophisticated technology, students are likely to reach the conclusion that
suppliers’ bargaining power is low, which helps to explain Apple’s high profitability in 2014. In the longer
term, supplier practices could have a negative impact on Apple’s reputation, especially if new competitors
enter the market or existing competitors launch attractive new products that entice customers to switch from
Apple. Another major risk is that CSR problems will start to affect the rate at which consumers switch to
newer models of the iPhone. The instructor will find it useful to broaden the discussion beyond consumers’
reaction and its impact on Apple’s bottom line. Pressures from other stakeholders — such as NGOs, the media,
and the government — forced Foxconn to make significant and costly changes to its labour practices. Which
of these costs, changing practices or suffering from a backlash, do students believe is greater? This question
does not have a measurable answer.

Page 8 8B16M040

8. What is the role of media, including social media, in shaping CSR expectations?

The primary role of the media is to inform the public about firms’ practices, particularly those that violate
legal and ethical standards. Given that the public often lacks direct knowledge or experience of what goes
on inside a firm, the media often represent the primary source for such information, and therefore have a
strong impact on consumers’ beliefs, attitudes, and expectations of a firm.

To help student to understand the role of the media, the instructor can ask them to think about all forms of
media, including news articles, publications, television broadcasting, and online social platforms (i.e., social
media), all of which can be categorized as secondary stakeholders (see Exhibit TN-4). The instructor can
then encourage students to consider the view that the primary stakeholders and the secondary stakeholders
are isolated from each other. They can, however, interact with and influence each other, and even sometimes
overlap: for example, a social activist can also be a customer. Therefore, the information distributed by the
media is likely to influence the decisions and actions taken by consumers, employees, potential employees,
and even shareholders and investors. As can be read from the case, when the BBC broadcast the report of
its undercover investigation on TV, Apple’s first action was to email its employees to ensure that they
remained calm. However, all Apple stakeholders, both primary and secondary, who watched or heard the
news would have been influenced by the program.

The general discussion about the impact and characteristics of media (including social media) could be a
useful way to start tackling this question. The instructor should encourage students to share their
experiences of how they learned about the Apple-Pegatron issue. Also, students should be able to say how
the information they received from media (including social media) influenced their own thoughts and
attitudes toward the issue and the companies involved.

The larger overall point of this media discussion is that Apple’s CSR problems relate to Apple’s current
CSR practices not meeting the CSR expectations of its stakeholders, who are to a large extent shaped by
media. To decrease the gap between practices and expectations, and as an alternative to improving its CSR
practices, Apple could try to better manage the expectations of the company by all media.

9. Does Apple face an industry-specific issue, or do the same issues appear in other industries?

This question is optional. The smartphone industry is not the only industry that is experiencing this kind of
issue. The instructor can have students discuss the kinds of issues that have arisen in different industries
and how those industries have dealt with them.

Another example is the garment industry, which has a long history of struggling with issues related to
human rights and safety in their offshore outsourcing operations. One of the most well-known examples is
Nike. In the 1970s, Nike was heavily criticized for the sweatshops in South Korea and Taiwan that supplied
Nike sneakers. Problems with sweatshops in the garment industry have continued. In 2013, the Rana Plaza
factory in Bangladesh, where factory workers made clothes for big brands such as Primark, Mango, and
Benetton, collapsed, killing more than 1,100 people in the process. Realizing the lack of regulations and
awareness regarding safety, some global brands agreed to sign an independent agreement, The Bangladesh
Accord on Fire and Building Safety, to make factories in Bangladesh safer and to prevent the same disasters
from happening again.

Another example is the food industry, where Starbucks was severely accused for sourcing coffee beans
from the farms in African countries where children were exploited while being paid extremely low wages.
Having received various accusations from NGOs and the public, Starbucks changed its strategy and

Page 9 8B16M040

currently buys coffee from farmers or plantations that are Fairtrade-certified, which guarantees minimum
prices for the products. Other industries with a variety of CSR and legitimacy problems include banking,
weaponry, tobacco, chemicals, and alcohol.

In many other industries, such problems rarely surface. The instructor will find it interesting to explore with
students why certain industries are criticized more than others. Is it that consumer-facing companies are
under greater scrutiny? Is it the nature of the product? Does it come down to the specific choices that have
been made by certain firms in the industry? The discussion around this question is likely to raise the point
that the set of CSR issues varies from one industry to the next and it is therefore difficult to generalize
across industries and even across firms.

10. If you were in the position of Jeff Williams, what, if anything, would you do differently?

The instructor should focus this discussion on the individual level and encourage students to think of
themselves as decision-makers. Several options may be discussed. Students may see this situation as an
opportunity to differentiate the company, the products, and the brand from those of Apple’s competitors,
and take proactive action accordingly, through strengthening co-operative relationships with suppliers,
doing even more to help suppliers to improve the working environment, or even training employees of the
suppliers to understand their rights. Others may consider differentiation to be a threat that might damage
Apple’s reputation and customer loyalty, and may suggest such defensive measures as trying to make
suppliers abide by local laws and advertising their efforts in the form of reports or publications. The
instructor may need to play devil’s advocate (i.e., argue in opposition to students’ viewpoints) to stimulate
discussion around the various suggestions.

In discussing this question, the instructor should remind students that Jeff Williams needs to manage not
only upward (in terms of his relationship with Tim Cook) and downward (in terms of working with his
colleagues inside Apple) but also sideways (in terms of both managing relationships with outside suppliers
and Apple stakeholders). While sharing their opinions, students need to understand and keep in mind that
individual managers are bounded in their capacity and have limited authority to act because they have only
a limited amount of time and attention to give. In fact, some may argue that this limited managerial attention
is at the heart of all of Apple’s problems.

Debating Option

An alternative to the traditional question-and-answer approach is to put forward some of the above
questions as statements: for example, “It is reasonable for Apple to apply different ethical standards to
different countries.” The instructor can then assign one person or a group of people to argue for and another
person or group of people to argue against the statement. After the debate, the class can be asked which of
the two sides they agree with and why.

Depending on the set of questions and the approach chosen, the wrap-up of the case will vary. In our experience,
it makes sense to return to some of the questions asked at the beginning and ask the following: Has any of this
discussion led you to change your mind? Another useful question to pose in an effort to develop empathy is
“Would you want to be Jeff Williams and be required to deal with this issue?”

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WHAT HAPPENED

As the case mentions, Apple’s response came immediately in the form of a strong denial. Not long after, the
media accusations died down again, as did the public attention toward this issue. In the meantime, Apple
released the iPhone 6s and iPhone 6s Plus on September 9, 2015, and both models sold very well. The
“phenomenal” sales outcome of the first products launched since the big scandal suggests that consumers
might not care enough about the way the products are made to change their buying behaviours.4

EXHIBT TN-1: QUESTIONS FOR THE CASE DISCUSSION, DEPENDING ON THE COURSE TOPIC

Strategic
Management

International
Business

Ethics and
CSR

Operations
Management

Identify the multiple levels of
analysis at play for Apple as it
addresses the CSR challenges in
its supply chain.

X X X X

Is Apple responsible for the
alleged human rights violations
that occurred?

X XX

Would onshoring, insourcing, or a
combination of the two represent a
suitable response to Apple’s
problems?

XX XX X X

If Apple continues on the current
path, what should it do differently? X X XX XX

Is it reasonable for Apple to apply
different ethical standards to
different countries?

XX XX X

Should firms such as Apple
maximize their profits, or should
they sacrifice some profits to do
good?

X

X X XX

Have these CSR problems at
Apple had a meaningful impact on
the bottom line?

XX X X

What is the role of media,
including social media, in shaping
CSR expectations?

X X XX

Does Apple face an industry-
specific issue, or do the same
issues appear in other industries?

XX X XX X

If you were in the position of Jeff
Williams, what, if anything, would
you do differently?

XX XX XX XX

Note: CSR = corporate social responsibility; X = suitable; XX = especially suitable.
Source: Created by the authors.

4 Victoria Woollaston, “Apple Smashes Sales Records with Its iPhone 6s: Tech Firm Sold More Than 13 Million Handsets in
the Opening Weekend,” The Daily Mail, September 28, 2015, accessed December 2015,
www.dailymail.co.uk/sciencetech/article-3252095/Apple-smashes-sales-records-iPhone-6s-Tech-firm-sold-13-million-
handsets-opening-weekend.html.

Page 11 8B16M040

EXHIBIT TN-2: WHY THE APPLE CASE IS COMPLEX TO RESOLVE: MULTIPLE LEVELS OF
ANALYSIS

Location

Domestic Offshore

Ownership

Outsourcing Individual level
Firm level
Inter-organizational level

Individual level
Firm level
Inter-organizational level
Institutional level

Insourcing Individual level
Firm level

Individual level
Firm level
Institutional level

Source: Created by the authors.

EXHIBIT TN-3: PROS AND CONS OF DIFFERENT GOVERNANCE MODES.

Domestic
Insourcing

Domestic
Outsourcing

Offshore
Insourcing

Offshore
Outsourcing

Level of Control High Medium Medium-High Low

Level of Compliance High Medium Medium-High Low

Level of Co-operation Not Applicable Medium-Low Medium-High Low

Level of Communication High Medium Medium Low

Labour Costs High High Low Low

Switching Costs High Low Medium Low

Source: Created by the authors.

Page 12 8B16M040

EXHIBIT TN-4: APPLE’S STAKEHOLDER MAP

Note: NGOs = non-governmental organizations
Source: Created by the authors.

Apple Inc.